Trade Policy Overview of Indonesia in 2023
Indonesia’s merchandise exports hit US$292 billion in 2022, a rise from the US$231.5 billion in 2021 and almost doubling the figure in 2020. The merchandise imports were valued at US$237.5 billion in 2022, resulting in a US$54.5 billion trade surplus. The services balance remained in deficit, decreasing to US$20.3 billion in 2022 from US$14.6 billion in 2021.
As per the latest data from Statistics Indonesia, the primary exports of the country in 2022 included manufactured goods, mineral products, oil and gas, and products from agriculture, forestry, and fisheries. China, the US, Japan, and India were the top export destinations. The leading imports in 2022, excluding oil and gas, were raw/auxiliary materials, capital goods, and consumer goods. China, Singapore, Japan, and the US were the main sources of these imports.
While being a member of the World Trade Organization (WTO) and the G20 group, Indonesia also engages with regional institutions such as the Asian Development Bank and the Asia-Pacific Economic Co-operation forum. Its membership in the Association of South-East Asian Nations (ASEAN) includes participation in the ASEAN Economic Community and multiple free-trade agreements (FTAs) with external partners like Australia, New Zealand, China, Hong Kong, India, Japan, and South Korea. All ASEAN FTA partners, except India, ratified the Regional Comprehensive Economic Partnership in late 2020, which came into force in January 2022. The US generalized system of preferences also benefits Indonesia, allowing thousands of its exports to enter the US without duty.
In 2020, bilateral Comprehensive Economic Partnership Agreements (CEPAs) were formed with Australia, and one was signed with South Korea but has been implementing since 2023. A CEPA with the European Free-Trade Association (including Iceland, Liechtenstein, Norway, and Switzerland) signed in 2018 was also unratified as of the end of 2022.
FTA talks with the EU were ongoing at the close of 2022 and were affected by a trade dispute due to an EU regulation from 2019. The regulation aimed to phase out certain palm-oil-based fuels between 2023 and 2030, leading to a lawsuit by Indonesia, the leading global producer of palm oil. An agreement was reached in September 2022 between the European Commission and Indonesia to accelerate negotiations, targeting a conclusion by mid-2024.
In December 2022, the WTO ruled in favor of the EU in a case involving Indonesia’s restrictions on nickel ore exports, a decision that Indonesia stated it would appeal, leaving the matter unresolved as of the end of 2022.
Law 7/2014 in Indonesia grants the government broader authority in international trade, such as the ability to restrict exports and implement protective measures for local industries. The law has raised international concerns as it reflects a protectionist trend in trade policy.
To protect its domestic automotive sector, Indonesia raised the Article 22 income tax rate on luxury car imports (along with more than 1,140 other products) from 2.5% to 10% starting at the end of 2018. Import permits for passenger cars with engine capacities of 3,000 cc or higher were also halted.
According to the World Bank, as much as 69% of Indonesia’s merchandise imports are subject to measures like pre-shipment inspection and traceability requirements, compared to 31.1% in Thailand and 38% in Vietnam. In 2020, the Ministry of Industry set a target to replace 35% of raw material imports with domestic products by 2022. However, no report has been issued on whether this target was achieved as of the end of 2022.
Finally, all trading companies in Indonesia must obtain a trade business license (surat izin usaha perdagangan—SIUP) from the Ministry of Trade. As per Regulation 7/2017, this license remains valid as long as the holder is engaged in trading activities, eliminating the previous requirement for renewal every five years.
Import
Import Taxes & Tariffs
Indonesia classifies imports and exports using the Harmonized Commodity Description and Coding System, extending it to ten digits. The customs-duty tariff is based on the Harmonized System (HS) Code as classified in the Indonesian Customs Tariff Book (CTB), which is revised every five years, with the latest revision in April 2022. The code is vital as it determines customs duties and taxes, along with import or export requirements for the product. Indonesia has been a part of the World Trade Organization (WTO) since 1995, reducing tariffs and non-tariff trade barriers.
The nation plans to implement the harmonization of customs procedures and e-services regulation in 2023, in line with the Regional Comprehensive Economic Partnership (RCEP), signed in late 2020 and in force since January 2022 between the ten-country Association of South-East Asian Nations (ASEAN) and its free-trade partners, except India.
Import tariffs in Indonesia are mainly on an ad valorem basis, with duties ranging between 0% and 20% for most items. However, specific products such as certain food products, alcohol, perfume, cosmetic or sanitary goods, plastics, ceramic products, and cars may have duties of 30–170%. According to the WTO’s 2022 tariff profile of Indonesia, the country’s average applied tariffs were 8.1% during 2021, and the average final bound tariff was 37.3%. Around 50.1% of non-agricultural tariff lines and 76.5% of agricultural products had normal most-favoured nation (MFN) applied tariffs of 0–5% in 2021. The highest normal MFN applied duties were on beverages and tobacco (46.1% average), followed by clothing (23.9%), transport equipment (13.5%), and coffee and tea (13.2%). The lowest were on cotton (4.0%) and petroleum (0.2%).
Intangible goods under HS Code Chapter 99, including software and electronic digital goods, have 0% import duties, although they may be subject to a 10% value-added tax and usually 2.5% Article 22 income tax. Government Regulation (GR) 80/2019 reduced the tax threshold for certain tangible goods purchased online from US$75 to US$3 since end-January 2020, intending to support local businesses.
Concerns about protectionist trade policies, such as import licenses for textiles and steel products, have been raised by the WTO. Import restrictions on items like rice and sugar have led to tariff cuts since the 1990s that haven’t boosted trade but have only decreased the tax collected by state agencies.
Under the ASEAN free-trade agreement, duties on goods from ASEAN countries are bound at 0–5%, except for excluded products. Preferential tariff rates are accessible under ASEAN’s free-trade agreements with various countries.
Under Ministry of Finance (MoF) Regulation 107/2015 and 110/2018, Article 22 income tax on certain imported goods was defined and increased for 1,147 consumer goods from 2.5% to 7.5% or 10%. GR 39/2019 details penalties for underpayment of import duties ranging from 100% to 1,000% of the shortfall. Exemptions from duties and taxes are provided for goods related to oil-and-gas exploitation activities, industries affected by the COVID-19 pandemic, and coronavirus vaccines, under regulations like MoF Regulation 70/2013, 134/2020, 92/2021, and 188/2020, the latter being in effect as of end-2022.
Import Restrictions
Regulations on Import and Export: In April 2021, the Ministry of Trade (MoT) announced Regulation 18/2021, effective the following November. This regulation restricts the import and export of 424 items across categories like forestry, agricultural, mining, cultural heritage products, scrap metal, and “subsidized fertilizer.” Specific items include rattan, coniferous trees, certain wood, uranium, and silver ores, along with rice, sugar, ozone-depleting substances, used bags, chlorofluorocarbons, certain drugs, waste categories, and mercury-containing medical devices. Alcoholic beverages, lubricants, explosives, and specific chemicals are restricted.
Importer Identification and Approval Process: Importers must have one of two identification numbers (API): a general API (API-U) for trade or transfer, or a producer API (API-P) for personal use. Restricted imports need additional approval from a licensing body, including a surveyor report. Failure to complete the requirements may lead to revocation of APIs and re-export orders.
APIs and Online Submissions: The API can be obtained online via the OSS portal and remains valid indefinitely, requiring renewal every five years. Quarterly reports must be submitted online. An API is not needed for temporary imports, promotional products, and goods for research or scientific development.
Halal Product Assurance: Law 33/2014 mandates halal certification for all products imported, distributed, and traded in Indonesia. Non-halal items must be labeled accordingly. The requirement extends to various sectors in phases until October 2034. Applications for halal certificates are made online.
Customs Verification and Registration: Imports are subject to document verification and physical inspection by the Directorate-General of Customs and Excise (DGCE). Registration with DGCE follows the obtaining of a business identification number. The customs process has been accelerated through Regulation 219/2019.
Certificates and Licensing Requirements: All imports with restrictions or incentives must have valid certificates of origin. Business licenses, obtained via the OSS, are needed for distribution activities. Additional rules apply to franchisors and franchisees, and foreign distributors must appoint an Indonesian entity.
Changes and Removal of Restrictions: The Omnibus Law lifts certain agricultural import prohibitions. Strategic commodities like rice and sugar remain restricted. Livestock importation has been relaxed under GR 2/2022, and a provision that restricted food imports with sufficient local supply has been removed. Administrative penalties apply for food safety violations.
Labelling and Temporary Imports: Strict labeling continues under BPOM Regulation 31/2018. Temporary imports without duty payment are allowed for re-export under MoF Regulations 106/2019 and 102/2019. Such imports may stay in Indonesia for one year, extendable by two more years.
Export
Export Taxes
1998 IMF Agreement and Reduction of Export Tariffs: Under an agreement with the International Monetary Fund (IMF) in 1998, Indonesia pledged to reduce export tariffs on 34 commodities, including paper pulp, wood chips, veneer, railway sleepers, rattan, logs, sawn timber, and natural sand, along with the raw materials used to produce these items. The agreement had a significant impact, greatly lowering export taxes on these goods.
Export Taxes Collected by the Directorate-General of Customs (End-2022): As of the conclusion of 2022, the Directorate-General of Customs is responsible for gathering export taxes on commodities such as raw skins, leather, cocoa beans, coal, and crude palm oil, including its derivatives. The export tax on crude palm oil undergoes a monthly review based on average prices in Jakarta, Rotterdam, and Kuala Lumpur. Additionally, the government levies an export charge on crude palm oil and its derivatives, which was briefly waived in mid-2022 but re-imposed in December 2022.
Planned Export Levy (Q1 2023): In a statement from the Ministry of Energy and Mineral Resources in December 2022, the government disclosed plans to implement an export levy in the first quarter of 2023. This move aims to secure an adequate supply for domestic power plants and industries.
Export Duty on Type 1 Minerals (MoF Regulation 6/2014): The Ministry of Finance established a flat 60% export duty from 2016 on so-called Type 1 minerals (including copper, iron ore, lead, manganese, zinc, ilmenite, titanium) and low-grade nickel and washed bauxite. Reduced export duties are available based on progress in smelter construction, with rates ranging from 7.5% to 0% depending on the stage of construction.
Nickel Ore Export Ban and Future Export Taxes (2020-2022): Indonesia prohibited the export of nickel ore in 2020, leading to increased exports of nickel pig iron and ferronickel, used in stainless steel production. In August 2022, the government announced plans to tax these exports to encourage domestic stainless steel capacity investment.
Article 22 Income Tax on Exports (MoF Regulation 107/2015): The government, under MoF Regulation 107/2015, collects an income tax known as Article 22 on specific exports. This tax is considered a pre-payment for the corporate income tax liability of the exporter. Certain goods like coal, metal minerals, and nonmetal minerals are taxed at 1.5% of the import value.
Free Trade Zones
Goods are not subject to standard customs procedures if they remain outside of Indonesia’s conventional customs territory. Bonded zones serve as areas designated for managing goods and materials. This management includes tasks such as design, engineering, sorting, initial examinations, and packaging.
Under Regulation 131/2018 from the Ministry of Finance, a limit is set on the sale of products from bonded zones to local consumers. This limit is set at 50% of the total value of the prior year’s exports, transactions to other bonded zones, free-trade zones, and other economic regions. Should a company operating in a bonded zone exceed this limit, it faces a reduction in its domestic quota for the subsequent year. There is a provision to increase the 50% cap, but it requires approval from the Directorate-General of Customs and Excise and a recommendation from the Ministry of Industry.
Bonded zones offer particular advantages, including allowing foreign nationals to own their businesses entirely and granting exemption from import duties on production-related spare parts and materials. They also provide a drawback on duties and additional charges for imports into the Indonesian customs zone that are later shipped to bonded zones for exportation.
In 2015, the government introduced Government Regulation 85/2015, outlining a new form of bonded warehouse called a bonded logistics center. Unlike bonded zones, this center is specifically for storage without processing commodities. Benefits include delayed import duty and exemptions from various taxes, including value-added tax, luxury goods sales tax, Article 22 income tax, and even excise duty.
Special Economic Zones (SEZs) also operate within Indonesia, offering a range of incentives. These incentives include tariff and tax breaks, as well as customs refunds, and extend to non-fiscal benefits like faster land purchases, accelerated business licensing, streamlined port processes, and simplified procedures for foreign working permits. As of the end of 2022, there were 15 operating SEZs in Indonesia, with several more under development. Approximately 135 industrial estates exist throughout Indonesia, primarily on the main island of Java, and many are located within the SEZs. A transnational bonded zone also exists, encompassing Singapore, Johor (Malaysia), and Riau (Sumatra, in Western Indonesia).
Export-intended production entrepôts (EPTEs) were established by Indonesia in 1993. These stand-alone export-processing units may exist inside or outside an industrial estate. EPTE status applications are submitted to the finance minister through the Directorate-General of Customs and Excise. Goods can be imported into an EPTE and re-exported without tariffs, except if directed into Indonesia’s regular customs territory. Similar to bonded zones, EPTEs are allowed to redirect up to 50% (by volume) of their goods to Indonesian customs areas, where standard procedures and customs duties apply.
Export Restrictions
Restrictions on the Export of Raw Materials
In an effort to enhance its exports, foster refining industries and employment, ensure domestic supplies, and conserve resources, Indonesia has been tightening restrictions or imposing bans on the export of raw materials like minerals and timber in recent years.
Law 4/2009 mandates that mining companies must process mineral ore within Indonesia before exporting it, although exceptions exist. Government Regulation 1/2014, with subsequent amendments, requires processing for all minerals but confines refining requirements to metals, certain associated minerals, by-products, and residuals. Additionally, the law eased refining requirements for a category called Type 1 minerals (including copper, ilmenite, iron ore, lead, manganese, titanium, and zinc), along with low-grade nickel and washed bauxite, until January 11, 2022. These products could be exported with limited processing until that date.
The government announced a 2022 ban on all raw mineral exports. However, a ministerial decision by the Ministry of Energy and Natural Resources in March 2021 allowed continued export of raw mineral ores under specific circumstances for license holders not meeting smelter targets. President Joko Widodo has also expressed plans to ban unprocessed tin exports in 2024, with similar plans for bauxite and copper in 2022 and 2023. But due to insufficient refining capacity, these timelines may be altered, possibly leading to high export duties to encourage investment in downstream industries. An export duty of 60% is already in place on Type 1 minerals and washed bauxite, exempting companies that show progress in smelter construction or refining facilities.
Changes in Coal Export Policies
In January 2022, a month-long ban on coal exports was implemented following a reported shortage. According to Ministry of Energy and Mineral Resources (MEMR) Regulation 139/2021, coal mining firms must sell a minimum of 25% of their production domestically. Penalties for failing to meet the domestic market obligation (DMO) were introduced through MEMR Regulation 13/2022, and export levies are planned for early 2023.
Export Regulations for Minerals and Coal
Ministry of Trade (MoT) Regulation 96/2019 requires exporters of processed or refined minerals to obtain a certificate valid for three years from the MoT. Approval from an MoT-registered surveyor is also required for each shipment. This regulation replaced MoT Regulation 1/2017.
MoT Regulation 95/2018 mandates that coal exporters obtain specific export permits called eksportir terdaftar batubara (ETB) and adhere to new reporting requirements. MoT Regulation 94/2018 requires exporters of certain minerals, types of coal, and crude palm oil to secure letters of credit and submit reports.
Oil and Palm Oil Export Regulations
Restrictions on crude oil exports are outlined in MEMR Regulation 42/2018, obliging oil producers to prioritize domestic sales. Various inconsistent restrictions were imposed on palm oil exports in 2022 to regulate domestic cooking oil prices. Temporary bans, removal and reimposition of export levies, and changes in mandatory palm oil content in biodiesel occurred throughout the year.
Other Export Restrictions and Prohibitions
MoT Regulation 18/2021 lists goods banned from export for reasons such as national security, intellectual-property protection, human health, environmental protection, and treaty compliance. Examples include agricultural and forestry products, precious stones, and endangered species.
Indonesia’s withdrawal from the Organization of Petroleum Exporting Countries in 2009 and 2016 left the export licensing regime for oil in place. The country also forbids direct exports to Israel due to the lack of diplomatic relations, and normalization is not expected prior to Palestinian statehood.
Export Credits & Insurance
Asuransi Ekspor Indonesia (ASEI): State-owned Export Insurance
Export Insurance Indonesia, or ASEI, serves as the chief source of export insurance for all products excluding oil and gas within Indonesia. ASEI policies cover up to one year and indemnify the exporter for 85% of the loss, with the exporter bearing the remaining 15% risk. The agency sets these credit limits based on the foreign buyer’s creditworthiness and the situation in the destination country.
Covered commercial risks include insolvency of the importer, default or failure to pay within six months, and the importer’s refusal to accept goods not related to a breach by the exporter. Covered noncommercial risks include obstacles that prevent or delay payment into Indonesia, import quotas, import license cancellation, and war.
Exclusions from coverage encompass losses due to negligence, those covered by general insurance like marine transport and fire, losses by the exporter’s agent or collecting bank, and fluctuations in foreign exchange rates. ASEI also offers domestic credit insurance, protecting local sellers from domestic buyers’ nonpayment.
Indonesia Eximbank (LPEI): Export-Credit Agency
Indonesia Eximbank, established in 2009, serves as Indonesia’s export-credit agency. It secures its own funding through securities and borrowing from various sources, including the Indonesian government.
LPEI offers insurance protection against losses from commercial and political risks, export guarantees, and a broad range of financing services. These services include both conventional and sharia-compliant options, such as:
- Export-investment loans
- Export working-capital loans
- Import and standby letters of credit
- Negotiation/export draft discounting
- Purchase of suppliers’ invoice
- Project financing
- Trust receipts
- Warehouse-receipt financing
LPEI’s overseas financing includes buyer’s credit and investment financing outside Indonesia. The Credit Guarantee for Financial Institutions program, providing guarantees for business financing from banks, is one of LPEI’s notable offerings. Foreign companies are not eligible for official export-credit programs with the LPEI.
